Bearish momentum in the corn market brought on by this season’s bumper crop estimates is to a degree, now being offset by implied demand from the transport sector. In other words, ethanol distillers best get while the getting is good.
Month to date, the CBOT corn/ ethanol “crush” is averaging $1.38 per bushel.
While that is well, well below what distillers were earning in 2005 and 2006, it is a considerable improvement over the previous two seasons. However, these favorable distilling margins might not last. As the USDA noted, estimated beginning corn stocks were lowered because of increased demand for ethanol use, but also due to “…higher expected use for sweeteners with tight sugar supplies.”
No surprise there, sugar is one of the top 5 or 6 performing contracts (depending on the index, i.e. S&P GSCI, RJ/CRB et al.) year-to-date. On a rolling contract basis, the NYBOT/ICE contract is up 57.9% this year. Estimated beginning sugar stocks in the U.S. for the 2009/10 season are now forecast to come in 26% below the 2008/09 season; hence the bid in the market. Sugar is only the 5/6th best performing contract year to date.
We are okay with that, supplies are tight. Therefore, the bid in this market is not hard to comprehend. On the other hand, gasoline supplies in the U.S. are at one of the highest levels since World War II, demand is weak and personal consumption expenditures on gasoline are now in an uncomfortable range (>3%)… yet, the NYMEX RBOB contract is outperforming the sugar market, up 79.7%.
That makes RBOB the 3rd best performing commodity market this year. As such, corn appears to be getting squeezed on both ends… and the futures are showing it. Therefore, one has to ask, how long can the current good times for ethanol distillers last in this environment? In the opinion of the analysts at , given the above picture, probably not too much longer.
Stephen Schork is the Editor of, and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.